Budget 2025 and Make in India

Finance Minister Nirmala Sitharaman will deliver her eighth consecutive Union Budget on February 1. This will be the inaugural comprehensive Budget of the NDA 3.0 for FY26. The 2025 Budget should prioritise reforms to enhance the ease of doing business for MSMEs and promote exports to fulfil the Make in India initiative.

No significant nation has effectively shifted from poverty to prosperity without strong industrial capabilities. The Make in India initiative, launched on September 25, 2014, is a significant project of the Modi administration that is now entering its 10th year. The campaign aimed to elevate the manufacturing sector’s contribution to the GDP to 25% by 2022, achieve an annual growth rate of 12-14% in the manufacturing sector, and generate 100 million additional jobs by 2022. Nevertheless, the targets have been extended to 2025; however, due to the current pace and insufficient infrastructure, achieving this appears unlikely by 2025 or even 2030.

Positive Signs

The government is striving to create a competitive, dynamic environment to provide sustained economic growth and enhance its relevance in international trade. The results are visible in some sectors, such as the development/manufacture of Covid-19 vaccines by Indian companies.

Due to the sustained efforts of the government, during 2014-2023, FDI equity inflows into the manufacturing sector have increased by 55% to $1.5 billion, compared to $1 billion in the previous nine years (2005-2014). India, which has traditionally been a net importer of toys, has now become an exporter. India’s toy exports achieved a growth of 636% in April-August 2022 compared to the corresponding period in 2013. According to a report by the India Cellular and Electronics Association (ICEA), mobile production grew from ₹18,900 crore in 2014-15 to an estimated ₹4.1 lakh crore in FY24. Similarly, progress is also being made in other sectors like aerospace and renewable energy. According to a report by the IBEF, the manufacturing sector recorded the highest-ever exports in 2023, reaching $447.46 billion. India has rapidly improved its rank in the Ease of Doing Business Index released by the World Bank. India ranked 134 in 2014; it was at No. 63 in 2023. India is ranked 43rd in the last published Global Competitiveness Index, up from 60th in 2014.

Make in India after 10 Years

Even after 10 years of the Make in India programme, we are still far behind. The programme initially prioritised defence production, but it was not as successful as anticipated. Although India’s arms imports declined by 33% between 2016 and 2020, India was the world’s top arms importer from 2019 to 2023, with imports having gone up by 4.7% compared to 2014 to 2018, as reported by the Stockholm International Peace Research Institute (SIPRI). Covid-19 is not solely responsible for the state India’s manufacturing sector is in today and it did not happen overnight. The closure of a company leads to displacement of thousands of workers. General Motors (2017), MAN Trucks (2018), United Motors (2019), Fiat (2019), Harley Davidson (2020) and Ford (2021) have all decided to exit the Indian market in the last five years. The Federation of Automobile Dealers Associations says these exits resulted in the loss of 65,000 jobs and a loss of ₹2,500 crore of dealer investment.

In China, the share of manufacturing in GDP is 34%. Other Asian countries with a larger share of manufacturing in GDP than India include South Korea (26%), Japan (21%), Thailand (27%), Singapore and Malaysia (21% each), Indonesia and the Philippines (19% each).

China as the ‘workshop’ of the world

The Chinese have positioned themselves as the ‘workshop’ of the world and account for 22.4% of global manufacturing while India, despite being the fifth largest economy, contributes barely 2.9% to global manufacturing. Imports from China are hurting Indian small and medium industries, because cheap Chinese goods are making it difficult for small domestic companies to compete in the market. The Global Trade Research Initiative (GTRI) indicates that numerous imported goods are detrimental to local MSMEs, hindering their growth due to the availability of inexpensive Chinese products. China provides 96% of India’s umbrellas, 92% of artificial flowers, and human hair products.

Chinese imports included 60% of glassware, 51.4% of ceramic products, 52% of musical instruments, 48.7% of furniture, bedding, and lamps, 39.4% of tools and cutlery, 49.3% of stone, plaster, and cement, and 54% of the leather goods market. Notwithstanding the government’s augmentation of the customs charge on toys from 20% to 70%, China retains a 35% position in the Indian toy business. China constitutes 51.4% of ceramic products and 52% of musical instruments. Between January and June 2024, India exported $8.5 billion to China and imported $50.4 billion, leading to a trade imbalance of $41.9 billion. Approximately 98.5%, or $49.6 billion, of imports from China consist of industrial items. China accounts for 29.8% of India's industrial goods imports. India continues to grapple with its trade deficit. The nation's trade deficit was ₹7,800 crore in the previous fiscal.

Future course correction and the way forward

Recently, the government has taken some steps to promote manufacturing, which include PM Gati Shakti (Supply Chain), National Single Window Clearance (providing a single digital platform for clearance to investors), GIS-Mapped Land Bank (One- Stop).

The skills and capabilities of the workforce need to be enhanced through education, training and lifelong learning programmes to match the needs and demands of the industries. India must be at the forefront of adopting Industry 4.0 over time, as also promoting smart manufacturing, adopting advanced technologies like AI, ML, IoT, robotics etc. Manufacturers often struggle to receive payments on time, hence the NPA (non-performing assets) policy for MSMEs should be 180 days instead of 90 days. Import duty on raw materials should be in the lowest or zero slab, on intermediates in the lower 2.5-5% slab and on finished goods in the standard slab.

The MSME sector contributes more than 45% to manufacturing output in India. As a result, there is an urgent need for greater connectivity of MSMEs with the global economy. PLI schemes should be extended to MSMEs and emerging industries to increase exports. Taxation and customs policies are complex to such an extent that it is cheaper to import things like medical equipment rather than manufacture the equipment domestically. 

India can make itself the next ‘global factory’ in the future, but there is a need to free the manufacturing sector from cumbersome rules. The government needs to understand that passing several bills through Parliament and holding investor conferences will not be enough to promote industrialisation. Morgan Stanley predicted in recent research that India would become the world’s third-largest economy by 2027. Manufacturing's share of GDP is expected to rise to 21% from 17% by 2031, and India's share of global exports will double.

Brajesh Kumar Tiwari is an Associate Professor at Atal School of Management (ABVSME) Jawaharlal Nehru University (JNU), New Delhi.